DEM, INC.
Semi-Annual Report
June 30, 1996
<PAGE>
<TABLE>
<CAPTION>
DEM, Inc.
Portfolio of Investments June 30, 1996 (Unaudited)
Common Stock - 47.5%
<S>
<C>
<C>
Shares
Value
Banking - 12.0%
9,500
BanPonce Corporation
$427,500
1,000
Capital Bancorp/Miami, Florida
28,250
15,000
Carver Federal Savings Bank*
120,000
1,000
Independence Federal Savings Bank*
7,500
583,250
Communications - 5.7%
11,000
Mastec, Inc.*
277,750
Computers - 0.1%
1,000
Micronics Computers, Inc.*
2,562
Consumer Products - 6.9%
13,000
Warnaco Group, Inc.
334,750
Consumer Services - 0.4%
1,000
Jenny Craig, Inc.*
17,875
Clothing and Fabrics - 3.5%
10,000
Supreme International Corporation*
172,500
Electronics - 2.8%
3,500
Lattice Semiconductor Corporation*
84,438
4,000
S3, Inc.*
49,250
133,688
Food - 4.9%
6,710
Tootsie Roll Industries, Inc.
239,043
</TABLE
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DEM, Inc.
Portfolio of Investments (Continued)
Common Stock - continued
<S>
<C>
<C>
Shares
Value
Healthcare - 0.5%
1,000
Owen Healthcare, Inc.*
$13,875
1,000
United American Healthcare Corporation*
10,500
24,375
Media/Publishing - 3.5%
5,000
BET Holdings*
131,875
3,000
Granite Broadcasting Corporation*
38,812
170,687
Pharmaceutical - 3.9%
5,000
Watson Pharmaceuticals, Inc.*
189,375
Technology - 3.3%
1,000
Envirotest Systems*
2,750
4,000
Osicom Technologies, Inc.*
65,500
10,000
Sigma Designs, Inc.*
93,750
162,000
Total Common Stock
$2,307,8
55
Short-term Investments - 50.9%
Principal
Value
Money Markets - 1.5%
70,889
Fidelity Institutional U.S. Government
Cash Portfolio II
$70,889
</TABLE
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
DEM, Inc.
Portfolio of Investments (Continued)
Short-term Investments - Continued
<S>
<C>
<C>
Principal
Value
Discount Notes - 49.4%
130,000
Federal Home Loan Bank Discount Notes
5.29%, due 7/1/96
$130,000
740,000
Federal National Mortgage Association
Discount Notes
5.24%, due 7/3/96
739,785
500,000
Federal Home Loan Bank Discount Notes
5.24%, due 7/9/96
499,418
290,000
Federal Farm Credit Bank Discount Notes
5.29%, due 7/10/96
289,616
245,000
Federal Home Loan Bank Discount Notes
5.29%, due 7/11/96
244,640
500,000
Federal Home Loan Mortgage Corp.
Discount Notes
5.29%, due 7/22/96
498,457
$2,401,9
16
Total Short-term Investments
$2,472,8
05
Total Investments - 98.3%
$4,780,6
60
</TABLE>
* Non-income producing during the period
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
DEM, Inc.
Statement Of Assets and Liabilities June 30, 1996 (Unaudited)
<S>
<C>
Assets
Common Stock Investments (Cost $2,186,275)
$2,307,855
Short-term Investments - at cost plus interest
earned
2,472,805
Interest Receivable
319
Prepaid Expenses
41,315
Deferred Organizational Expense
44,707
4,867,001
Liabilities
Investment Advisory Fee Payable
3,467
Administrator Fee Payable
578
Accrued Expenses
4,469
8,514
Net Assets - equivalent to $14.10 per share on
344,480 shares of Common Stock outstanding
$4,858,487
Summary of Stockholders' Equity
Common Stock, par value $.00001 per share:
authorized
500,000,000 shares; issued and outstanding
344,480 shares
3
Capital Surplus
4,741,251
Overdistributed Net Investment Income
(3,371)
Accumulated Net Realized Loss on Investments
(976)
Unrealized Appreciation of Investments
121,580
Net Assets Applicable to outstanding Common Stock
$4,858,487
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
DEM, Inc.
Statement Of Operations (Unaudited)
For the Six Months
Ended June 30, 1996
<S>
<C>
<C>
Investment Income
Dividend Income (Net of withholding
tax of $180)
$ 3,131
Interest Income
86,666
89,797
Advisory Fees
21,749
Transfer Agent Fees
15,579
Legal and Auditing Fees
14,169
Directors' Fees and Expenses
6,234
Organizational Expenses
4,968
Administrative Fees
3,625
Custodian Fees
3,274
Other Expenses
8,232
77,830
Net Investment Income
$11,967
Realized and Unrealized Gain On
Investments
Net Realized Loss on Investments
(976)
Net Unrealized Appreciation
121,580
Net Realized and Unrealized Gain on
Investments
120,604
Net Increase in Net Assets Resulting
from Operations
$132,571
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
DEM, Inc.
Statement of Changes in Net Assets
For the Six Months
Ended June 30, 1996
(Unaudited)
November 30, 1995*
through
December 31, 1995
<S>
<C>
<C>
Operations
Net Investment Income
$ 11,967
$ 1,885
Net Realized Loss on
Investments
(976)
0
Net Increase in Unrealized
Appreciation of Investments
121,580
0
Net Increase in Net Assets
Resulting From Operations
132,571
1,885
Distributions to Shareholders
from:
Net Investment Income
(17,222)
0
Net Realized Gain on Investments
0
0
Net Decrease in Net Assets
Resulting
From Distribution to
Shareholders
(17,222)
0
Increase in Net Assets from
Fund Share Transactions
338
4,740,915
Total Increase
115,687
4,742,800
Net Assets
Beginning of year
4,742,800
0
End of Period (including
overdistributed net
investment income of
$3,371 and undistributed
net investment income
of $1,885, respectively)
$4,858,487
$4,742,800
</TABLE>
* Inception
See notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following table summarizes certain selected financial data that have been derived from the audited financial statements
as of December 31, 1995, and the unaudited financial statements as of June 30, 1996. This information should be read in
conjunction with the financial statements as of December 31, 1995 and June 30, 1996, and the notes thereto, which are
included in the Statement of Additional Information.
Six Months Ended
June 30, 1996
(Unaudited)
Period November 30, 1995
(Commencement of operations)
to December 31, 1995
<S>
<C>
<C>
Per Share Operating Performance:
Net asset value, beginning of period
13.77
13.97
Net investment income
0.03
0.01
Net gain on securities (realized and unrealized)
0.35
0.00
Total from investment operations
0.38
0.01
Distributions paid from:
Net investment income
(0.05)
0.00
Net realized gain on investments
0.00
0.00
Dilutive effect of organizational costs
0.00
(0.21)
Net asset value, end of period
14.10
13.77
Market value per share, end of period
$15.50
$15.00
Total Return*
3.68%
Ratios/Supplemental Data:
Net Assets, end of period (000 omitted)
$4,858
$4,743
Average commission rate paid
5.00%
0.00%
Portfolio turnover rate
2.30%
Ratios to Average Net Assets:
Expenses
3.23%
0.04%
Net investment income
0.50%
1.45%
* Does not reflect sales load
** Annualized
</TABLE>
<PAGE>
DEM, Inc.
Notes to Financial Statements June 30, 1996 (Unaudited)
1. ORGANIZATION
DEM, Inc. (the Company) was incorporated on October 20, 1995, in the state
of Maryland and is registered as a nondiversified closed-end management
investment company under the Investment Company Act of 1940, as amended.
The principal investment objective of the Company is long-term growth
through capital appreciation. Both capital appreciation and income will be
considered in the selection of investments, but primary emphasis will be on
capital appreciation. The Company will retain maximum flexibility as to
the types of investments it may make and it will be permitted to invest in
portfolio companies with large and small market capitalizations. The
Company, however, intends to seek to invest a substantial portion of its
assets in securities of domestic emerging companies with smaller market
capitalizations. There can be no assurance that the Company's objectives
will be achieved. The Company's investment objectives and policies may be
changed by the Board of Directors without the approval of shareholders.
Most of the Company's investments are expected to be in marketable common
stocks or marketable securities convertible into common stock traded on an
exchange or in the over-the-counter markets.
While the primary objective of the Company is to seek long-term growth
through capital appreciation, the Company may invest its assets in income
producing securities such as non-convertible preferred stock, bonds,
debentures, notes and other similar securities, if the Investment Advisor
deems such investments advisable.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
These statements are unaudited, and certain information and footnote
disclosures normally included in the Company's annual financial statements
<PAGE>
have been omitted, as permitted under the applicable rules and
regulations. The results of operations presented in the accompanying
financial statements are not necessarily representative of operations for
an entire year.
Deferred Organizational Costs
Costs incurred to organize the Company totaling $49,675 have been deferred
and will be amortized on a straight-line basis over a five-year period.
If any of the initial shares of the Company are redeemed by any
shareholder during the period organizational costs are being amortized, the
redemption proceeds will be reduced by the pro-rata amount of the
unamortized organizational costs, based on the number of initial shares
outstanding.
Interest Income
Interest income is recorded on the accrual basis to the extent that such
amounts will be collected.
Income Taxes
The Company intends to elect and qualify each year to be treated as a
regulated investment company (RIC) for Federal income tax purposes in
accordance with Subchapter M of the Internal Revenue Code of 1986, as
amended. In order to so qualify, the Company must satisfy certain tests
regarding the source of its income, diversification of its assets and
distribution of its income. If the Company otherwise qualifies as a
regulated investment company and distributes to its stockholders at least
90% of its investment company taxable income, then the Company will not be
subject to Federal income tax on the income so distributed. However, the
Company would be subject to corporate income tax on any undistributed
income. In addition, the Company will be subject to nondeductible 4%
excise tax on the amount by which it distributes in any calendar year is
less than a statutorily-designated, required amount of its regulated
investment company income and its capital gain net income (generally 98%).
3. INVESTMENT ADVISORY AGREEMENT
The investment advisor to the Company is Chapman Capital Management, Inc.
(the Advisor and CCM). Pursuant to an Investment Advisory Agreement, the
Adviser will receive an advisory fee from the Company at an annual rate of
.90% of the average weekly net assets of the Company. CCM also serves as
<PAGE>
the Company's administrator and is compensated for those services at an
annual rate of .15% of the average weekly net assets of the Company.
BA3DOCS1\0043313.01